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Keeping Score

Should I get a retail card with a 0 percent APR deal to make a big purchase?

Store cards typically have high regular APRs, so consider this only if you have a plan to pay it off and avoid deferred interest

Summary

Retail store cards tend to combine deferred interest deals with high regular APRs, so consider this only if you have a plan to pay off your balance before the introductory period ends. You can do this by creating a budget that accounts for all of your monthly income and expenses.

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Dear Keeping Score,

I am 24 years old and have just recently begun using a credit card. My credit score is 717, and I rarely use much of my $2,500 limit. Most of the time I purchase things like gas or groceries and transfer my money over immediately.

With that being said, I am not looking to get credit cards to “max them out” or use up all of the credit, but the one thing that does interest me are websites like Amazon that offer credit cards that will allow you to have financing options on purchases. As a student, it would be nice to have an option for a website I use often to be able to pay monthly on that purchase.

So, is it right for me to get credit cards only for that option to be available? Or is it smarter to use my credit card I already have to just make monthly payments on the purchase. I’m sorry if this is a no-brainer of a question, but I just wanted to double check on this subject. Thank you so much! –John

Check out all the answers from our credit card experts.

Ask Steve a question.

Dear John,

No, I wouldn’t say that this is a no-brainer question. At 24 with a credit score of 717, I’d say you are doing a good job so far.

Although I don’t know which credit card you currently have, I’m going to assume it’s a garden variety Visa or Mastercard that charges a high interest rate on purchases you carry over into the next billing period.

The Amazon.com Store Card’s policy of allowing you to spread payments over a number of billing cycles (based on the dollar value of your purchases) at a 0 percent APR may look like free money, especially given its current regular APR of 28.24 percent.

Of course, it’s not, but I’ve seen too many otherwise bright individuals get carried away and then have trouble making the required payment. And store cards’ no-interest promotions are typically deferred interest deals – meaning that if you don’t pay your full balance within the promotional period, you’ll get charged interest on the full price of whatever you purchased.

If you are planning to use credit to extend your payments over a number of months, I suggest you avoid this problem by creating a budget or spending plan that accounts for all your monthly income and expenses.

With this in hand, you’ll know just how much you can afford to carry on your Amazon (or other) card. You can find a large number of budgeting apps on the web.

See related:  Which is the best card to use on Amazon.com purchases?

Your credit score: Keep up the ‘good’ work

As for your score, it is in the “good” range for FICO and if you keep going like you have been, it shouldn’t be long until you reach the “very good” range that starts at 740. Let’s talk about the best way to make that happen.

Your practice of paying your credit card for your purchases immediately is one you should continue. This keeps your credit utilization low, which counts for 30 percent of your score, and even more importantly assures your payments are always made on time. The payment piece of the credit scoring pie is worth a whopping 35 percent of your score. I suspect that this combination is what has earned you a good score in a relatively short period of time.

To quickly review what makes up your score, the remaining 35 percent works out to 15 percent for the age of your accounts, 10 percent for credit mix and 10 percent for new credit.

The age of your accounts is the one aspect of credit scoring that is currently out of your control. If you got your first credit card or loan at the age you are now, your credit history will show as less than a year. But it will only go up from there, so take heart.

As for the remaining two credit scoring factors, it’s good to mix up your credit between revolving accounts and installment loans, but don’t sign up for accounts you don’t absolutely need. Each new credit account triggers a hard inquiry on your credit report, which typically lowers your score by five points or fewer. But a new account can also have a temporarily negative effect under the new credit category.

See related:  New ‘Credit Builder’ card from Amazon: Is it worth it?

If you’re mulling a large purchase, make a payment plan

When it comes to large purchases, be sure to update your budget or spending app to account for increased payments. Whether you are using a card with a 0 percent or 29 percent APR, always set a payoff date and stick to your repayment schedule.

Lastly, be very sure you can afford the monthly payments required to pay off the purchase in that time period if something unforeseen pops up. You can accomplish this by beginning to build a small emergency savings stash and adding to it as you go along.

Remember to keep track of your score!

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Credit Card Rate Report Updated: September 18th, 2019
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15.45%
Airline
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17.52%
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17.39%
Student
17.58%

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